What is a follow-on public offer (FPO)?

A follow-on public offer (FPO) involves a stock exchange-listed firm issuing shares to investors. A company’s follow-on offering is an extra share issue following an IPO.

Follow-up offers are sometimes called supplementary offerings.

Following Public Offer (FPO) Process

Offer documents that allow public firms to use FPOs. FPOs are distinct from IPOs, which include public stock offerings. Following an exchange listing, companies issue FPOs. Selling proceeds go to the stock issuer. Corporations must submit SEC filings like an IPO to conduct a follow-on public offer.

Types of FPOs

Follow-on public offerings fall into two categories:

• Investors are diluted when the board of directors increases the share float or quantity of accessible shares. A follow-on public offering raises funds to decrease debt or grow the firm, increasing the number of outstanding shares.
• Non-dilutive follow-on public offers exist as well. When directors or significant shareholders sell privately owned shares, this method works.

Thin Follow-up

A corporation raises funds by issuing more shares and selling them to the public in diluted follow-on offerings. More shares mean lower earnings per share (EPS). Funds obtained during an FPO are typically used to decrease debt or alter a company’s capital structure. The financial infusion benefits the company’s long-term outlook and shares.

Continued Offering Without Dilute

Follow-on offers are non-diluted when private shareholders sell previously issued shares to the public. Non-diluted sales provide cash proceeds for shareholders who sell the shares in the open market.

These stockholders are often founders, directors, or pre-IPO investors. EPS is constant as no new shares are issued. Non-diluted follow-on offers are known as secondary market offerings.

ATM Offer

An ATM offering allows the issuing firm to raise funds as needed. If the corporation is unhappy with the share price, it might stop offering them. ATM offers can sell shares into the secondary trading market at the present price, making them controlled equity distributions.

Follow-up Public Offer Example

Follow-on offers are prevalent in investing. They let firms quickly obtain equity for common objectives. Secondary-offering companies may lose share prices. Secondary bids, which dilute existing shares and are sometimes offered below market prices, often face harsh reactions from shareholders.

Many firms made follow-on offerings in 2015 after going public within a year. Shares of Shake Shack (SHAK) fell following a secondary offering announcement. Shares plunged 16% after a sizeable secondary sale below the share price.

Companies raised $142.3 billion in stock through follow-on offerings in 2017. We had 737 FPOs in 2017. The number of FPOs increased by 21% from 2016. The value of FPOs decreased by 3% in 2017.

Following public offerings (FPOs) provides what advantages?

A public firm may raise stock for numerous reasons. They might use the revenues to pay off debt, enhance their debt-to-value (DTV) ratio, or finance new initiatives to develop the firm.

What are the advantages of at-the-market (ATM) offerings?

ATM products have various benefits, including little market effect. Companies can raise funds quickly without an IPO. ATM offerings cost less and need less administration than traditional follow-on solutions.

What are the disadvantages of ATM offerings?

ATM offers are smaller than typical follow-on offerings; therefore, they may not be suitable for raising vast amounts of capital. Market fluctuations may also affect pricing.

Bottom line

A publicly traded firm generates capital through a follow-on public offer (FPO) by issuing and selling new stock on the stock market. The corporation usually does this to fund new initiatives, pay off debt, or improve working capital. Dilutive and non-dilutive FPOs exist. The corporation receives money from book-building sales of shares at a set price. Existing shareholders can buy or sell shares in the FPO. FPOs allow enterprises to raise cash without debt in the stock markets.

Conclusion

• After an initial public offering (IPO), a corporation may issue more shares in a follow-on public offer (FPO).
• Companies launch FPOs to raise stock or decrease debt.
• Dilutive FPOs add additional shares, whereas non-dilutive FPOs sell private shares openly.
• A corporation can raise cash by issuing secondary public shares at the market (ATM) any day, depending on the market price.